Sub-prime turmoil may hamper growth of emreging markets: Mohan

Published: Thursday, September 20, 2007, 20:39 [IST]

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Mumbai, Sep 20 (UNI) The US sub-prime turmoil could weigh heavily on the future stability of emerging markets, posing major threat to their growth, said Rakesh Mohan deputy governor of Reserve Bank today.

Addressing a conference here, Mr Mohan said a high vulnerability of emerging economies to reversals of capital flows that may pave road blocks in their growth.

''We will have to wait and watch. In general, recent financial markets developments are indicative of evolving uncertainties for emerging economies with significant challenges for the conduct of monetary policy and for ensuring financial stability in their economies,'' he said.

Mr Mohan's comments may well interpreted as the regulators tight stand on monetary reviews and the measures expected to be taken by the Reserve Bank in its upcoming mid-term policy.

''This (recent developments in global markets) could further complicate the conduct of monetary policy. As central bankers, we will have to enhance our vigilance,'' he said.

On the other side, the slow down in US economy, in combination with capital reversals, could also have adverse consequences for growth on a prolonged basis by affecting exports of manufactures and services, depending on the extent of linkage with the US economy, he said.

The recent global turmoil, which began in a relatively minor segment of the financial market sub-prime mortgage segment have spread far and wide across continents necessiating the need for effective transmission of risk information among the lenders, the deputy governor said.

''It is important to recognise that there is a need to understand better the process of transmission of risk information through various segments of the financial markets in order to address the crisis of collateral in the credit market,'' he added.